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I will never be an expert on China. It is just too big, too complex and too old with layers of history and meaning that would take several lifetimes to unravel. As I said to my hosts, China, driven by it huge population builds big – Big airports, Big train terminals. Big road systems. Big apartment blocks. And yet you drink tea from cups the size of thimbles.

Because of the gigantic size of their market, many companies can specialise. I drove down 15 miles of road entirely devoted to furniture stores. We crossed over to the shoe district and then to the leather district. We visited a factory producing water based ink on his 10 acre site and a factory devoted only to embossing paper. On my last day, I found myself in a square mile of narrow alleyways devoted to wedding dresses and tuxedos in a quest for that right little number for my wife. In driving around, however, I was most shocked by the sight of a small shop of perhaps 500 sq. feet that sold only electric drills. In our micro market, where everyone has to be everything, all the time, it was refreshing to see a different and profitable business approach.

It reminded me of research on the US I did years ago where I found an obscure town in Nevada, I think, that produced most of the rubber pipe used in the US. The United States has a gigantic market and efficient distribution system (read road, rail and air) whereby it is possible to dominate a market and yet not be at the centre of it. Think of what we could do better with NAFTA which is in explicably underexploited by us.

How could we emulate the success of China? We have cheap power, high labour costs and some cheap raw materials. We are shipping raw goods to China. The successful Chinese manufacturers in turn buy German and Japanese equipment to operate lights out facilities and then ship back to us. Is there a model there? Do we need ore entrepreneurs and highly skilled labour?

But China has entered a sluggish period and that is forcing a change that will have long term benefits. The old style entrepreneurs sold on price alone. Many have not found a way to break that mould. But a few have gone to the quality end of the spectrum. This is especially valuable in meeting the demands from BC over the next 10 years for the rapid development of the energy and minerals sector. I visited 2 vocational schools there that churn out 3000 CNC machine operators a year, that train 300 baristas a year – for the skyrocketing coffee culture in China. And the emphasis was on a quality product, customer service and cleanliness that would put to shame huge swathes of business in British Columbia.

China has lessons and opportunities for us. We need just to listen and pay attention – then act.

Canada’s SMEs prefer to manage their finances in-house, according to our survey of 727 companies

Canadian business owners have a do-it-yourself approach to financial management, according to the latest instalment of the American Express Small Business Monitor.

Fully 92% of the 727 owners surveyed (each of whom employs fewer than 100 people) believed they could speak adequately to their businesses’ finances. While 71% said they handle their own bookkeeping, 95% deal with budgeting and forecasting in-house, and 79% handle their own payroll work.

Managing finances internally is not necessarily a drain on employees’ time, with 50% of respondents saying they spend less than five hours a week on it and only 9% taking more than 15 hours weekly.

The one area that remains tricky for many Canadian firms is taxation—only 55% of the businesses polled do their own taxes in-house. At the same time, taxes were ranked the most challenging aspect of business finance by nearly one-fifth of respondents, with the same number rating cash-flow management as most difficult.

Technology is key to respondents’ financial management: 33% use software that makes the process simple; 11% turn to websites to learn the basics.

Small businesses are remaining positive, despite the slow economic recovery. Sixty-three percent are “hopeful” about their firms’ financial future, and 52% said they saw a slight or significant improvement during the last quarter. However, companies are continuing to take a cautious approach, with 66% willing to take only moderate risks, versus just 6% prepared to attempt significant risks.

Here are other key findings of the AMEX Monitor, co-produced by PROFIT and Canadian Business.

Do you have a minute? There’s something I’ve got to get off my chest. Can we keep it just between you and me? Yes? OK – here it is.

Buyers are liars.

There. I’ve said it. Buyers are liars. Maybe it’s the purchasing tactics that an organization uses to drive a bargain. Maybe it’s simply what an individual does to look good to the boss. Whatever the reason, purchasing at many businesses can push the boundaries of truth well past the level of absurdity.

You know you believe me. After all, how often have you heard one, more, or all of these lines?

“You guys are the highest priced player in the market.” Right. As if that one isn’t completely transparent. You’ve probably already got a pretty good idea what your competitors charge. If you’re the highest priced player, odds are it’s because you’re a premium product, or you’ve chosen that approach as part of your overall sales strategy. Remarkably, we’ve heard this line even when two companies control 80%-90% of the market, with little if any price differentiation.

“Switching costs nothing.” Your customer wants you to think you need them far more than they need you. But you buy products and services, too. You know full well that switching vendors always carries some level of cost, risk and pain. That’s the real reason behind the threat. It’s much easier to bluster than it is to actually make a change.

“You are 10% too high to get this deal.” It’s the purchasing equivalent of the auto salesman saying, “Tell me what you can afford, and I’ll see what I can do.” Give in, and you’ll never regain control over the sales process. Purchasers will go to absurd lengths to make this lie stick – right down to fake quotes from competitors, or even fake POs to competitors “accidentally” being sent to you instead.

“You are selling a commodity. It’s exactly the same as everybody else’s.” Outside of products traded on an electronic commodities exchange, every vendor should be bringing some degree of value add to the process. It might be the range of guarantee, freight and delivery expertise, brand recognition, technical know-how, or customer service. That’s what attracted the purchaser to you in the first place. It’s amazing how often someone thinks you’re special, only to insist you’re not, once there’s actual money on the table.

So, what’s an honest, hard working company to do, in the face of such perfidy? Over the last century, tens—if not hundreds—of books have been written about effective negotiation tactics. In the best-selling book Getting to Yes, Roger Fisher and William L. Ury offer five key propositions for a principled negotiation:

Separate the people from the problem

Focus on interests, not positions

Invent options for mutual gain

Insist on using objective criteria

Know your BATNA (Best Alternative To Negotiated Agreement)

In addition to the tried and tested techniques offered by Fisher and Ury, and the always critical building of two-way trusted relationships with your buyers, we must step into buyer negotiations armed with the right information. In our experience, the following five techniques are quite effective at cutting through the baloney.

Acknowledge the truth: buyers, do, indeed, lie from time to time. Even if they’re good people. Even if they’re your friends. It’s part of the process. It’s nothing personal.

Use your information: With the right database tools and analytics systems, you can regain the initiative. When a customer claims that they should get a discount because “we always pay on time,” you’ll know immediately if that claim is true, or if they’re actually habitually 15 days past due.

Call their bluff. A modest investment in Web-scraping and other tools can help your staff uncover publicly available information on competitive offerings and pricing. There’s not much room for argument when you’re clearly the better-informed party.

Drive the conversation in the right direction. When a customer throws out something that sounds outrageous, ask the questions that force them to produce quality answers. It will rapidly become clear if they’re telling the truth.

Always offer them value. Provide a valuable, differentiated offering with excellent service to back it up, and maniacally focus on maintaining or growing the gap between you and your competitors. With a sharp focus on staying ahead, It will be much easier to turn around buyer negotiations.

We should lament the passing of the Yellow Pages. Two decades ago, they were the only show in town and every small business had advertising in them. Every home had a copy. Every manager’s desk was within reach of a copy. Once a year, you spent 60 minutes deciding on the budget and the look of the advertising for the next entire year. Then you forgot about it and let the Yellow pages do the work.

It is less simple now. There are SO.. many avenues of advertising to your customer base. My marketing colleagues tell me you need to make contact 7 times, using as many types of contact as possible. And there are many possible points of contact; from LinkedIn, Facebook and instagram, to email blasts, newsletters, flyers, radio and TV.

But in the choice lies the problem for many small businesses. The choice requires that small business owners now find the time each week to devote to advertising and marketing. And we all know what happens when you get busy, right?

When a small business is finding it slow, the marketing taps get turned on – FULL. When they get busy the taps are quickly shut off. And the result is that sales rocket and then collapse – rocket and collapse. And the impact of this cataclysmic cycle is that profits suffer. At the bottom of the cycle, we drop prices to get work in the door. At the top of the cycle, we never increase prices to recoup lost profit.

But what would happen if the marketing taps were ON, full time? Well, sales would increase. And at the top of the cycle the order books would be full. And when the workload becomes overwhelming and the orders are coming in thick and fast, what to do? We could hire more people, buy more resources. Or you could simply increase prices and make a lot more money.

So the question is: is it profitable to hire a permanent, if part time, marketing person to keep your company always in the face of your potential customers. Is there any choice?

Apple has taught many entrepreneurs the importance of design, how to create buzz when introducing new products to the marketplace, how to pioneer new technology and the importance of superior quality.

But Apple also has wily pricing experts who have used pricing strategies to create extra profits.

The most recent example is the Apple response to Samsung’s huge presence in the India market. Apple’s products are too pricey for the average Indian, where many people still survive on $2 per day. Smart phones make sense in countries where electricity supplies and telecoms infrastructure is weak and prone to frequent blackouts. Phones add value to people’s lives by bringing them close to the markets. This has already happened in some poor fishing communities that dot the coastline. When heading back with the catch of the day, they can check the spot prices at various ports within reach and choose the best paying one. Clearly smart phones are an economic accelerator. So, how to get more smart phones into Indian hands?

Apple has used a price skimming strategy for the consumer market. Early adopters pay greatly for the newest and brightest toys. But Apple also knows that competitors can enter the market easily and quickly after Apple has pioneered the technology. So constant innovation is a hallmark of Apple products.

But that means the earliest smart phones are soon obsolete. Apple could NOT “dump” the old phones on the American or early adopter market, for fear of cannibalising its own consumer segment. So Apple took the older phones to India, effectively buying market share with a great if outdated product that has already generated all the profits Apple expected.

But not all of us have the luxury of dumping our old products on a foreign market. How can Apple’s leadership in this pricing gambit be put to use in a Canadian small business?

If your pricing model demands a profit margin on each and every inventory item you sell, you will not be able to sell the end of season or dust covered items for a dollar. You will lose money.

But Apple has a simple idea. Not all inventory moves equally. If you sell seasonal or fashion products, some product will be left over after the majority has sold. If your pricing model allowed for this hangover – check your records in prior years -, then you could sell the leftovers for $1 and make a profit. See my prior articles on how the big box stores price this way or take a look at my book , Pricing Strategies for Small Business. If you sell strategically, you can gain new clientele. By contacting your customer list and advising of a tremendous sale, you move inventory that would otherwise gather dust and gain loyal customers at the same time.

Contact Andrew Gregson for your next convention, conference or workshop.

A new survey suggests that nearly half of storeowners plan to lower prices this year in order to retain customers. Michelle DiPardo for Marketing || June 4, 2014

Nearly half of Canadian retailers (48%), plan on dropping prices this year to retain customers, according to the Canadian Retail Insights Report, released Tuesday by American Express Canada.

The findings represent a dramatic increase from the original study conducted two years ago, which found that only 35% of those surveyed would reduce prices to promote loyalty.

The report—which surveyed 375 Canadian businesses in the gas, grocery, pharmacy, restaurant, fast food, apparel and general retail sectors—focuses on what’s top of mind for Canadian merchants, including their industry and business outlook, challenges, growth strategy, and customer loyalty and acquisition.

“Canadian merchants are clearly serious about cultivating and maintaining customer loyalty, and they’re reducing prices to get them in the door,” said Jennifer Hawkins, vice-president and general manager of merchant services, American Express Canada, in a release. “As a result, I expect we’ll see increased competition among retailers across all verticals as they fight to retain and reach new customers.”

Across verticals, the report revealed that beyond simply slashing prices, 83% of Canadian businesses will offer sales, promotions or discounts as the top strategy to promote customer loyalty, with general retail, apparel and grocery ranking highest.

Canadian businesses are split when it comes to focusing on either acquisition or retention as their key business strategy. Gas, fast food, and general retail are all working on reaching new customers, and pharmacy and grocery are putting their efforts into retaining current customers.

Customer service continues to be of vital importance for all sectors, with 89% of retailers agreeing they need to put more attention into customer service.

The acceptance and use of new technologies in retail continues to grow with 72% of Canadian businesses agreeing that e-commerce is helping their company attract a new type of customer, with the general retail and apparel sector driving growth, ranking it a top priority for the year ahead.

Commissioned by American Express Canada and conducted by Nielsen, the survey was conducted between March 17 and April 3, 2014.

Gallery

Imagine a business, if you would, that shows decent margins, low debt, and slowly growing sales. Bankers examine the financial statements declare that the company is in good shape. “Carry on and keep up the good work,” they say. But … Continue reading →

I have just read an article from November of 2013 (Managing Partner, published in New Zealand) about pricing for professionals. When surveyed about how they charge, most professionals shrug and admit that they charge what everyone else charges. It has reminded me to put value and choice at the very top of the list of how to devise winning pricing strategy that will increase profits.

Pricing professional services is a big problem for lawyers, accountants and anyone selling services. Professionals deal in results, but they charge for effort. The easy route is to charge by the hour but that makes it easy for a potential client to compare apples to apples. AB charges $125 per hour. BC charges $250 per hour. Therefore, AB is the best buy. But is that true?

So, would you buy a house based solely on price? House F is small, rundown, needs a roof and is in the middle of a rough neighborhood. It is listed for $229,000. House G is much larger and in a nice neighbourhood. It is occupancy ready and most importantly, your wife likes it. But its list price is $400,000. Which house has value?

In order to place value on a service for hire, the trick is to comprehend that the customer does not care about the amount of time, effort and sweat you expend. They want results. And what is the result they want? Do you ever ask? Where will the customer place the most value? Speed of service? Accuracy? No jail time? Or will they respect the weekends you spent on their file, the late nights and the cost of years of schooling?

So we establish, state and then highlight the value on the table, first, right? But now what?

In order to get your price, though, you must offer choice. Like Goldilocks , the choices must be few- not too high, not too low and just right. Choice in pricing will allow you to take clients and customers with all kinds of budgets and thickness of wallet, without discounting. The platinum package will have the largest assortment of bells and whistles. The gold package has fewer bells and only one whistle but has a lower price tag. The workmanship is still present, but the results are fewer. The bronze package is the budget offering with the lowest price and the fewest bells and no whistles at all.

Want to be more profitable? Be brave and get a better pricing strategy.

IBM’s “5 in 5″ series presents ideas about how life will be affected by technology over the next half decade. A video series provides the highlights, including this one that predicts the return of local brick-and-mortar retail to prominence over e-retailers that have been “spanking” them for years.

“This year’s 5 in 5 explores the idea that smart machines will learn, reason and engage with us in more natural ways–helping to amplify human abilities, assist us in making good choices–big and small, and help us navigate through life.

Within five years, we predict buying local will beat online. Savvy retailers will use the immediacy of the physical store to create experiences that simply can’t be replicated by online-only retail. Watson-like technologies and augmented reality will allow physical stores to turn the tables and magnify the digital experience by bringing the web right to where the shopper can physically touch it.

Brick-and-mortar retailers may still drive a significant majority of retail sales, but online sales are growing faster. Physical stores, once seen as a negative, will become a big positive. Their proximity to the customer will give them the advantage of integrating the immediacy of physical shopping with a magnified digital experience inside the store.”

It’s true that Watson’s offspring could drastically change a physical store’s shopping experience, but presumably any digital tool that a sales associate could use in-store could also be used by the shoppers themselves while they’re sitting on their couch. IBM says augmented reality, for example, could enhance the retail experience. Why not put that tool online and make it accessible from home? Virtual tools aren’t tied to physical locations.

For every company like IBM that offers tools to draw you back to the store, there will be a dozen online startups using the same tools (plus a few innovations of their own) to drive their own business that isn’t hampered by overhead costs like staff, rent and building insurance.

In the early 1980’s, when I began operational work with businesses, there was a conventional attitude to inventory control. This wisdom measured inventory control by looking at the relative cost of money and the interest charged against having that inventory on the shelf. That attitude saw the creation of robust ERP systems to help managers like me.

Because the recent price of money is so cheap, that business calculation has taken a knock; but the curtain is now drawn back revealing another way to measure the effectiveness of inventory control.

Consider that you have $10,000 per year with which to purchase housewares inventory. And let us suppose that 90% of that inventory sells during the year. At the end of the year 10% of the original $10,000 is still on the shelf. $1000. Theoretically, that means that in the coming year, only $9000 is available to purchase inventory. At the end of that year, assuming 90% sells, the will be $1900 worth of unsold inventory on the shelves. It does not take long to realise that all the cash will shortly be locked up in unsold inventory. The table and chart show how that works.

The result will be, of course, that the company finds itself less and less able to purchase new goods. There may not even be the room on the shelves or in the warehouse to store more purchases. From the customer point of view, the company will be stuffed with dust covered inventory. The company has ground to a halt.

If the dead inventory is converted to cash at even 20 cents on the dollar, you can use that cash to buy goods that will sell and buildup the cash available for further purchases.

Does this ever happen in real life? Yes is the simple answer. A decade ago, the company I managed had $600,000 of inventory of which 30% had no sales in 6 years. This strapped the company for cash. There were items on the shelf due to ordering errors and for which there was not even a market for more than 150 miles.

Recently, an office furniture company called me about their cash problems. They badly needed $100,000. But in their showroom and warehouse they had inventory totalling almost double that. The solution was to have a huge sale and convert everything to cash.

Remember that cash is king and being without it leaves you at the mercy of creditors, suppliers, and landlords. With cash, you have a chance. Even selling goods below cost and converting those goods to cash is better than sitting on mountains of unsold inventory.

Written by Andrew Gregson, Senior Partner at Floodlight Business Solutions and author of Pricing Strategies for Small Business (2008). 1-888-959-0752 www.floodlight.ca. Floodlight Business Solutions, where we help you drive profits.